The CBA labels insurance proceeds as a "refund from the player," which qualifies the amount as a cap credit for the club for the following season. In the simplest terms, if a player who eats up a significant portion of a club's salary cap misses significant time with injury or illness, a club doesn't have to take it as a total loss, but can recover space for the following year. Plus, insurance premium payments don't count against the salary cap.
"That's the crux of the loophole," the former club executive said. "You effectively can use cash to create cap space from scratch. In a closed system, that is one of the few ways to buy cap space."
It's a benefit that is discussed in hushed tones within the front offices that utilize it, and rarely with outsiders, including the media. The CBA provision has existed since 2006, and since then, the clubs that have taken advantage of this cap hack flew mostly under the radar.